How are we doing?

[Bcp1984]

Hi all, long time lurker here. I used to read the MSN forums and sometimes do, but i found they got boring. I was wondering you could provide a gross generalization of how we are doing with our personal finances, as hopefully we will buy a house in a few years when we get stationed back in the states.


I will be 27 in March and my wife 23 in January, so im curious how you all think we are doing for our ages.

So here it is:


Debt: 24500 car 2011 volvo C30 (mine)

Savings: 48900, will get to 50K by January first

TSP: just toped 10,000 this month, I currently save 17 percent of base pay, but may reduce that to 12 percent or so when wife quits her job.

Assets: Paid for 2008 Volvo S40 (hers)

We have no children and have little intentions on having any ( we have our two boxers who are our babies)

Thank you for the feedback!

Brandon

[KTP]

Looks great, congrats.

As soon as possible (tommorow?) put $5000 for each of you into a Roth IRA from your savings. Keep doing this at least until you are ready to buy a house, then you can withdraw as much of your contributions as needed for the house downpayment without any penalty. The advantage, aside from the fact that your Roth earnings grow tax free is that if you don't end up needing all of the money, you have locked in some great early contributions that you can never get back if you miss them.

I would suggest investing the Roth IRA in 1 year CDs if you really think you need all the money in a few years for the down payment, otherwise maybe some blue chip stocks or high rated corporate bonds to get 5% to 6% return with small risk.

If we had only had Roths at age 26....imagine the posibilities....

[Ima saver]

I think you are doing great. I agree with opening the roth Ira's as soon as possible.

[jIM_Ohio]

spend less than you earn (you did not list income or total expenses)
save about 20% of gross
and avoid adding debt from this point forward

[jpg7n16]

What's the rate on the car loan?

Assuming it's a normal loan 5-7%, I'd likely pay off the car.
If it's a super low rate, like 1.5% or something, I wouldn't bother accelerating payments.

Then keep around 5-6 months expenses in cash for EF.

Then for the home savings, it depends on what 'a couple years' means.
1-2 years: probably just keep in a money market account, or 1-2 year CDs; whichever has the better local rate
2-5 years: probably transfer from cash to a short-mid term bond fund (you would ideally want a fund with an average duration equal to your time horizon); you should avoid stocks for shorter term goals like this

If you want to store those investments temporarily in a Roth, I guess that's okay, but I'd likely keep it outside the Roth, and try to fully fund the Roth from your wife's income.


Since you're planning on eventually going to one income, have you tried saving 100% of her income? If not, it might be a good experiment to try.

[disneysteve]

Hi Brandon. I'd say it is impossible to say how you are doing because we don't know your income. The 17% savings rate looks good. I'm a little concerned about the expensive cars but again, I'd want to know your income. I'd also want to know the details of the car loan.

[Bcp1984]

Steve,

Our income currently is about 85,000 including my wifes. However our rental cost total about $18,000 dollars per year, so our income is quite as high as it seems. We live in Germany, and the Air Force pays the exact amount of my rent, so you could subtract from the $85,000.

My wifes job was initally for just fun traveling money, but then covered the car payment when we bought the new car. (we had shared one car for a year but scheduling difficulties prevented it further). Although I know most on here dont reccomed paying what I did, I had my reasons and love my car so I am content with it. The interest rate is only 3.5 percent as well.

Because the euro fluctuates to dollar prices, my income after taxes, TSP contributions, and rent averages between 1500-1700 every two weeks.

My wife makes about $700 every two weeks. We plan on paying of the car early as we did with our S40 (2 1/2 years). We will both drive the cars for the next 7-8 years or longer, as the Volvo's last forever.

Any other opinions are welcome as well.

[jpg7n16]

We plan on paying of the car early as we did with our S40 (2 1/2 years).

If it's your goal to pay off the car early, and you have enough cash to pay it off today, what is the reasoning for not paying it off today?

[Hector]

Looks great, congrats.

As soon as possible (tommorow?) put $5000 for each of you into a Roth IRA from your savings. Keep doing this at least until you are ready to buy a house, then you can withdraw as much of your contributions as needed for the house downpayment without any penalty. The advantage, aside from the fact that your Roth earnings grow tax free is that if you don't end up needing all of the money, you have locked in some great early contributions that you can never get back if you miss them.

I would suggest investing the Roth IRA in 1 year CDs if you really think you need all the money in a few years for the down payment, otherwise maybe some blue chip stocks or high rated corporate bonds to get 5% to 6% return with small risk.

If we had only had Roths at age 26....imagine the posibilities....

Do one get similar benefits(withdrawing for down payment without penalty) by investing in regular IRA as well?

[jpg7n16]

Do one get similar benefits(withdrawing for down payment without penalty) by investing in regular IRA as well?

Kind of, but not exactly. Regular IRA's are funded with pre-tax money. So when you withdraw from a regular IRA, since it hasn't been taxed yet, you must pay taxes on it.

The situation KTP was advising is essentially special to Roth IRAs. Since Roths are funded with after-tax money, and we are not taxed twice on the same money - you get to withdraw your contributions tax free. But this applies to the contributions only, not to the earnings. Since earnings haven't yet been taxed, and you likely don't meet the criteria for tax exempt withdrawls (over 59 1/2, disabled, death, etc.)


Why what you say is 'kind of' true: For 1st time homebuyers, you can withdraw for the downpayment without penalty from a regular IRA, but not without tax. (no 10% penalty if for 1st time home purchase)

Fool.com: All About IRAs - For First-Time Home Buyers

[Hector]

I see. I am opening retirement account at the age of 31 and living in SF bay area. Seems like I dont need to think towards down payment at least for a couple of years.

[Bcp1984]

If it's your goal to pay off the car early, and you have enough cash to pay it off today, what is the reasoning for not paying it off today?

Our goeal in paying the car off early does not involve using our emergency fund for this purpose. If something happened today and I was not in the Air Force tomorrow, i would have enough liquid cash to survive for up to two years. That security for my wife is unreplacable.So we pay a little extra months that we are going on trips to other countries.

We went to Sweden, Copenhagen and Italy this year,and paid cash for all trips/exspenses. We will be going to Rome for Valentines day so starting to save for that as well.

Brandon

[littleroc02us]

Honestly, I can see why your not making as much traction as you could, your playing with so many ideas. (Trips, cars, house, etc...) How can anyone make great headway with that plan. Here is what I would do.

1. Stop taking trips
2. Pay off the car, that will still leave you with 25k EF. Isn't that enough to last something like 8 months. (When you have to make payments on things that cuts down on your disposable income.)
3. Max out Roth IRA's for retirement.
4. Save for a 20% down on a 15 year mortgage @ no more than 35% of your income.

[Bcp1984]

Honestly, I can see why your not making as much traction as you could, your playing with so many ideas. (Trips, cars, house, etc...) How can anyone make great headway with that plan. Here is what I would do.

1. Stop taking trips
2. Pay off the car, that will still leave you with 25k EF. Isn't that enough to last something like 8 months. (When you have to make payments on things that cuts down on your disposable income.)
3. Max out Roth IRA's for retirement.
4. Save for a 20% down on a 15 year mortgage @ no more than 35% of your income.

We save on average around a $1000.00 per month, in addition to 17 percent of my base pay to TSP. Trips are not a nessecity, but being stationed in Germany is part of the luxury. It cost me 60-70percent less to visit a country than it would when I am in the states, so to me this is not a money waster, we enjoy traveling and sightseeing. (last time we went to Paris it cost us 600 dollars for three nights and all mueseums paid for which some people almost spend in eating out in a month alone).

We have zero credit card debt.

We intend on putting approz 75K down on a 110-130K home, which would eave me to carry a mortgage of about 30-50K, and 10-15kin savings when we get back to the states.

I am going to max the IRA;s out next year, something we just didnt do this year and should have.

Our ultimate goal? Own our home (paid for within the next ten years), cars paid for and driven for the next 6-8 years leaving no payments whatsoever while still contributing as much as possible to TSP. I will also recieve my military pension in 12 years if I stay in.

We rarely shop for things we don't need as there are not as many "stores" as there are in the states. We rarely eat out, so not much wasted money there.

[ActYourWage]

"I am going to max the IRA;s out next year, something we just didnt do this year and should have."

You can contribute to this year's (2010) Roth IRAs until April 15, 2011.